Wednesday, September 28, 2011

Public and Private Pay – Again!

The latest release from the CSO of the Earnings, Hours and Employment Costs Survey didn’t attract a huge amount of attention when published a few weeks ago. Here are the figures that tend to get the most attention since the survey started back in 2008.

In the three years to the second quarter of 2011, average gross weekly earnings in the private sector have fallen from €637 to €612 (a drop of 3.9%). Over the same time period average weekly earnings in the public sector have fallen from €931 to €901 (a drop of 3.2%). We will multiply these weekly amounts by 52 to get an annual earnings figure for the “average” private and public sector worker.

For the private sector this equates to an annual wage of €33,104 in 2008 and €31,818 in 2011. Using a basic tax calculator it can be shown that a single male with no additional credits or allowances would have seen his net pay fall from €28,421 in 2008 to €26,199 in 2011 – a drop of 7.8%.

For the public sector the annual equivalents are €48,387 in 2008 and €46,856 in 2011. The same tax calculator shows that net pay would have fallen from €37,003 in 2008 to €30,590 in 2011 – a drop of 17.3%.

The 47% gap in gross average earnings between the public and private sector narrows to 16% when converted to net pay in this hugely simplified example. Of course, there are major caveats excluded from this comparison. The private sector worker here is making no pension contributions. The public sector worker is contributing to a pension that will be worth more than the contributions could support. Job security cannot be accounted for when using gross and net earnings. The largest reason for the reduction in earnings in the economy has been job losses in the private sector.

All these factors, and more, are important when analysing wages in Ireland and just because they are excluded above is not an indication that they should be discounted. The example is merely a device to give some insight into the changes that have occurred to pay packets over the past three years; the fall in the public sector has been over twice the fall in the private sector.

This doesn’t mean that public sector pay should not continue to fall by more than private sector pay. A staggered wage cut from 0% for those at the bottom (with possibly even some increases) rising to maybe a cut of 12.5% through to the top of payscale (and maybe even more targeted than that), along with forthcoming general changes in income tax could bring the average fall in net pay in the public sector to 25% (with most of the latter burden shared by those above the average wage).

A 25% cut in net pay would be a huge contribution from the public sector but what needs to be remembered is that we are already two-thirds of the way there. At times this seems to get forgotten in the ongoing pay debate.